10 Ways to Negotiate Better Rates for Orthopedics Cases in ASCs

"Given the fact that orthopedics cases are implant intensive, the continuing challenge is to ensure you are covering your costs and receiving the highest reimbursement possible " says Dan Connolly, vice president of payor contracting for Pinnacle III. "Knowing how to deal with this challenge will depend upon the payor's persona and the culture of the ASC. With our country’s aging population, there is more demand for orthopedic procedures and payors will do what they can to ratchet down reimbursement to accommodate the demand. Payor consolidation is inevitable, whether through the more traditional exclusive provider network approach or another model, so do what you can now to ensure inclusion of your facility"

Here are 10 ways ambulatory surgery center administrators can negotiate better rates for orthopedic cases.

1. Figure out payor guidelines and address them. Insurance companies have guidelines for approving orthopedics and spine procedures, and every company has its own variation. Work with the companies to show you are optimizing the guidelines they have and performing a valuable service to their clients.

"ASCs want to show their care decisions are consistent with evidence," says Stephen Rothenberg, a consultant with Numerof & Associates. "Guidelines from surgical societies tend to be consistent in terms of diagnoses but may be inconsistent in terms of treatment, particularly in the case of spine conditions, so the payors can pick and choose in developing their payment policies. If you have different protocols at your ASC, present data to support the cost-effectiveness and quality of these procedures."

Before going into contract negotiations, be sure to clarify your goals, such as achieving higher reimbursement for a particular procedure.

"Once you have clear goals, you'll be able to determine what data you need to support them," says Mr. Rothenberg. "Then, you’ll need to have the technology to support data collection and continue to upgrade these systems in the future."

2. Prove these cases are safely performed in an ASC. Insurance companies are sometimes unwilling to negotiate contracts for more complex cases, such as spinal fusions, performed in a surgery center. Medicare does not currently reimburse for any spine procedures in outpatient ambulatory surgery centers, and some payors follow suit. Show them quality data to prove these procedures are safe and cost-effective in the ASC.

"Some payors hide behind the Medicare ASC-approved list and the majority of complex spine procedures aren't on the list," says Mr. Connolly. "In that case, you need to demonstrate the value and safety of performing these procedures in your center. Sometimes this will require the coordination of a meeting between the insurance company's medical director and the key surgeon(s) from your center to demonstrate the efficacy of performing these surgeries in the ASC," adds Mr. Connolly.

Payors in some markets have begun adding orthopedics procedures to their proprietary grouper map. For example, laminectomies and partial knee replacements haven't historically been on the Medicare-approved list and therefore not on the proprietary grouper list, but they are increasingly showing up on proprietary grouper listings now.

“This is good news because by virtue of being on the grouper list, the payor recognizes that these procedures can be carried out safely in the ASC setting," remarks Mr. Connolly. "The bad news is if you have an existing contract, depending on where the grouper hits reimbursement can be seriously deficient."

3. Carve out implants. Often the biggest expense for outpatient orthopedics cases is implants. Make sure these costs are covered in the negotiated rate, and if possible carve them out. Otherwise the surgery center will lose money on those cases and they'll transition back into the hospital.

"You have to look at the hard costs for joint replacements and make sure you are covering the cost of implants so you won't lose money on the surgery," says Angela McComb, director of managed care with ASD Management. "What you don't want is to get paid $1,000 from the insurance company and use an implant that is $500. The reimbursement won't cover your fixed costs."

If the insurance company balks at the carve-out rate you propose, bring an invoice from the device company to the negotiating table. "Present invoice costs for knee replacements or other high cost areas that might lead to a disagreement," says Ms. McComb. "Show them what your costs are if you are truly at an impasse. You're going to have to be persistent and ask them for the carve-out."

Sometimes surgeons have a particular reason for using their specific implants. "If they use devices made by a company that has good data, a strong track record and studies to support the device's use, you can show why a more expensive device is needed," says Mr. Rothenberg. "Sometimes the surgeon achieves a lower failure rate with a specific device. You have to have the data at the negotiating table to get what you want."

Surgeons can also work to lower the cost of implants by negotiating more competitive pricing with their vendors or securing implants at wholesale prices. Insurance companies will notice your willingness to partner with them on lowering costs per case.

"Look at using different implants when an opportunity to reduce costs without reducing quality arises," suggests Mr. Connolly. "There is a growing market in non-brand name devices  that is purported to provide equivalent outcomes at substantially lower costs. It's wise for surgeons and ASCs to consider using non-brand name implants when available."

4. Demonstrate clinical outcomes. Insurance companies are paying more attention to clinical outcomes than in the past and transitioning from fee-for-service to a pay-for-performance business model. As some orthopedics procedures, such as total joint replacements, are still relatively new in the outpatient surgery center space, it's important for surgery centers to collect data and demonstrate their positive clinical outcomes to achieve competitive reimbursement.

"The biggest challenge for surgery centers and orthopedic surgeons is to demonstrate their value, which requires outcomes documentation," says Mr. Connolly. "That's going to require following the patient more closely postoperatively because you can't manage what you don't monitor."

However, there are challenges to demonstrating quality outcomes. "Until insurance companies can come up with and agree upon a uniform measure of quality for ASCs, it will be very difficult for the companies as well as providers to agree upon the definition of a good quality provider. For this reason we fundamentally don't agree with the way the quality indicators are measured due to the lack of a consistent baseline," says Ms. McComb. "In some cases, one payor may rate you as a quality provider and one may not. This makes it very difficult for patients to figure out who actually provides the best quality of care in their area."

5. Collect data on patient selection. Providers are often so focused on cost and quality data they forget to demonstrate competence in patient selection. This is particularly important for surgeons performing cases in the ASC because not every patient will do well in that environment. Collect data to show your surgeons are making sound patient selection choices and leverage that for a better contract.

"Show that they are using the right procedure for the right patient at the right time," says Mr. Rothenberg. "Make that argument with supporting data. Figure out what you need in order to collect this data and examine where there is room for improvement. Then, the next time you negotiate with payors, make your argument."

Payors also tend to question new technologies and procedures performed in the outpatient setting. Collecting this data can show surgeons are making a good choice with the technology they use and it's worth the potentially higher upfront cost.

"There is a lot of push back in spine to new procedures that are performed at a higher cost," says Mr. Rothenberg. "Show that the technology is warranted for a particular indication without an increased risk of complication."

6. Leverage high demand for orthopedics procedures. While insurance companies will try to keep orthopedic rates low to accommodate the higher demand among an aging population, providers can also leverage the situation to achieve higher rates than in the past.

"Given the fact that we will have a greater demand for procedures and additional cost to perform them, there is more justification for increased reimbursement, or to preserve current rates that allow for a fair profit margin," says Mr. Connolly. "Don't assume pay increases will be the norm. While I saw substantial increases in some markets in 2012, I also had payors attempt to substantially reduce reimbursement in markets where payors had been reimbursing above the market rate."

In markets where payors traditionally reimbursed well, Mr. Connolly has seen rate reductions. Depending on several market factors, surgery center administrators can negotiate orthopedics as a high volume procedure going forward for better rates compared to other providers, such as hospitals or low volume orthopedic ASCs.

"If there are high volume procedures, you should be able to collect data showing consistent quality outcomes for patients that are cost-effective," says Mr. Rothenberg. "Collect data on key points in these procedures so you understand internally what is happening and you can discuss your performance with payors."

7. Compare rates with other providers. In addition to quality data, insurance companies may also respond to cost comparison data. While surgery centers are often a low-cost provider, they shouldn't negotiate themselves out of existence by accepting rates that are well under other providers in the community. Arrive at negotiations armed with economic data to show insurance companies your requested reimbursement is reasonable.

"Surgery centers are becoming more efficient at collecting cost data and determining direct and variable costs," states Mr. Connolly. "When possible, you should collect reimbursement data on other ASCs and hospital competitors in your market. Most of the time that data isn't readily available to you."

In recent negotiations, Mr. Connolly found that payors in one community were actually paying a lower rate at the hospital than at the surgery center because the hospital was able to take a pay cut on orthopedic procedures in favor of rate increases for other inpatient service lines. However, in most cases there is an opportunity to negotiate increased reimbursement while still saving the payor money.

"I've had consistently favorable results when I provide payors with blind data," notes Mr. Connolly. "In my most recent negotiation, I was able to secure a 14 percent increase with a payor that had historically not budged.  I truly believe it was because we went at them with data right from the beginning," he adds.  

Even if the payor is proposing reimbursing the surgery center at a multiple of Medicare, the reimbursement should cover the cost of implants. "Make sure you are getting paid adequately at the case level and carve out implants whenever possible," says Mr. Connolly. "For those payors that haven’t historically paid implants separately and aren't even paying equivalent to Medicare, remind them that Medicare includes built-in reimbursement for implants and ensure that you get at least what Medicare pays. There have been substantial gains in reimbursement for some Medicare procedures over the last four to five years, so the difference could be significant."

In one surgery center Mr. Connolly advised, a payor was reimbursing at 10 percent under Medicare on average without paying for implants separately. He was able to increase this rate by presenting cost data during negotiations. "Lay out your case and demonstrate, verify and validate what you are saying through the data you provide," says Mr. Connolly. "If they don't pay for implants and cover facility costs, those cases will continue to go to the hospital which means insurance companies will typically pay two to three times as much as they would if the case were performed in an ASC."

8. Justify rate increases. Tell the payor what it costs to perform orthopedic procedures in the ASC and show them what these procedures are worth. Justify rate increases by maintaining high quality service, patient satisfaction, outcomes and low complication rates. You can also compare your numbers with others in the market to close reimbursement gaps as much as possible.

"Sometimes what insurance companies are paying out as an average per case is not consistent with the market," says Mr. Connolly. "You want to leverage market parity, including what other payors for your surgery center are paying, so they know your requests are valid. If payors are willing to negotiate a rate increase, consider extending the contract for a longer term to preserve the relationship. I'm not for long term contracts generally, but in some cases it may make sense."

Surgery center administrators can also discuss the lower associated costs to justify a small rate increase in existing contracts.

"ASCs often have cost benefits compared to hospitals, so presenting that data will be important," says Mr. Rothenberg. "Surgery centers can have shorter lengths of stay, lower complication rates and lower readmissions. All of these aspects make the overall cost of care lower. In the future, insurance companies will increasingly pursue bundled payments for orthopedics and in that situation, understanding what is important to them will help you negotiate these contracts."

9. Understand the payor's needs in your market. Markets across the United States are vastly different, but payors are becoming more uniform in their desires and plans for the future. "When you go into a negotiation, you always need to have an idea of where you stand and if there are points where you can be more flexible to work on your relationship with the opposite party," says Mr. Rothenberg. "Also know how you will support your position. If you ask for something that the other party doesn't want to give you, there are ways you can persuade them. Understand the concerns of the other party and address that to meet your needs."

All insurance companies are concerned about overuse in certain procedures, treatment variations and cost-effectiveness. In some cases this means starting bundled payment programs or other payment models to pass risk on to patients and providers.

"I'm working with some payors that want to discuss some all-inclusive case rates. Taking on some risk may be necessary based on what's happening in the market," says Mr. Connolly. "However, if you don’t truly know what you're getting yourself into, from a short term perspective, you'll want to stick to the fee for service and cost-plus model to avoid reimbursement losses. In the long run, however, everyone is going to get to the point where we are looking at bundled payments whether they are at the ASC or episode of care level because payors want to transfer risk."

Payors are also looking to narrow variability wherever possible and there are opportunities for providers to partner with insurance companies to achieve their goals. "Payors are now forced to narrow variability in implants and other aspects of the procedure because the only way they can succeed and sustain their business under new regulations is to narrow that variability and then underwrite the insurance around that variability," says Mr. Connolly. "Depending on your risk tolerance at the center level, you can work with payors on new payment initiatives."

The price should be fair when negotiating bundled payments and without quality and cost data administrators won't know whether the rates are too high.

"Depending on your situation, you may be able to expand a bundle more broadly," says Mr. Rothenberg. "If your surgery center includes postoperative pain management and physical therapy, you can model what including these services would require and create an appropriate bundle. Show how these services help strengthen and improve patient rehabilitation and reduces patient visits down the line so you can justify the upfront costs to the payor. Bundled prices are an interesting avenue for ASCs to explore in the future. By offering a bundled price that provides some consistency in costs for the payor, ASCs can gain a competitive advantage over hospitals in the same market."

10. Don't negotiate rates too high. It's important to consider both the long term and short term impact of negotiated rates. The healthcare market is constantly changing to reward high quality and lower cost, and what might seem like a victory today with rate increases may become a defeat tomorrow as insurance companies direct their patients to a lower cost provider in the community.

"You really have to look at the goal from both short and long term perspectives," says Mr. Connolly. "Be aware of the payor's needs. Every payor needs to meet a reduced cost, so work with them to make that happen in a mutually beneficial manner."

In the future, patients will also begin price comparing among surgical facilities and request the lowest cost setting for surgery. "If it's a common procedure, they'll be able to bring up facilities in the area and project the minimum/maximum charges," Mr. Connolly says. "Patients will see which facility is the cheapest and this may influence whether their surgeon will perform the procedure at that specific facility. When feasible, the surgeon will do what the patient wants. Don't negotiate yourself out of the market from the patient's perspective."

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